AAPL Must Follow Nokia and Do Cheaper iPhone, Says Sundal Collier

By Tiernan Ray

He’s back.

Three days after initiating coverage of Apple (AAPL) with a Sell rating and a $400 price target, ABGSC Sundal Collier’s Per Lindberg today returns with another missive to clients, this time asserting that Apple will have to make cheaper models of its iPhone and risks losing profit margin if it does so.

Lindberg thinks Nokia‘s (NOK) “Lumia 620,” a less-epxensive version of its smartphone that runs Microsoft‘s (MSFT) Windows Phone operating system, announced yesterday, is the gauntlet being thrown down in a “ferocious” mobile battle:

In an unusual twist of fates, Apple may take cues from Nokia’s extensions of its new range of Windows devices. Yesterday, the champion of emerging markets introduced a ‘stripped down’ variant of the Lumia 920 which will soon be commercially available at half the price of that of the flagship model or USD 250 at the initial launch in January ‘13. This move – designed to tap into the burgeoning and buoyant entry-level segment – underpins the ferocity of competition now in full and vivid display.

Lindberg thinks Apple will debut a cheaper iPhone “mini” by next fall, “at price points much more palatable to ‘cost conscious consumers’ and ‘negotiation astute operators’ alike.” If it fails to do so, he writes “Apple’s volume share will in all likelihood rapidly erode,” while “In its presence, the enviable margins of the world’s pre-eminent brand will most certainly suffer.”

Lindberg concludes,

iPhone – mini” may carry a gross margin of 40% (on par with that of ‘iPad mini’), but nearly half of ~ 70% generated by the iPhone 5 today. Apple’s critical test of resilience is yet to come.

The note echoes remarks Monday by Barclays Capital’s Ben Reitzes, who argues a cheaper iPhone model for emerging markets is a “key” challenge for Apple. The idea, as I noted monday, has been floating around for quite some time now.

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There are 34 comments

DECEMBER 6, 2012 10:40 A.M.

Bill wrote:

Where did you find this Cracker Jack Analyst Sundal? In the dumpster looking for food?

DECEMBER 6, 2012 10:41 A.M.

Bill wrote:

Now there's a Top Rated Analyst, Sundel Collier. Who the F is this clown?

DECEMBER 6, 2012 10:45 A.M.

Dave wrote:

Yet another proof of this guy's incompetency. He has no idea what Apple is, and how they work. If that was their philosophy, they wouldn't be where they are today.Apple's fundamentals are intact, and stronger than ever. The recent management shake up will prove much more aggressive, innovative and efficient.

Glad I bought at $520 levels today, already $24+/share.

DECEMBER 6, 2012 10:57 A.M.

john wrote:

who the hell is this guy... where was he last few years.

Easy to kick a guy when he's down, a cheap shot and a disgrace!!!

DECEMBER 6, 2012 10:59 A.M.

kim yensuang/ceo wrote:

Do not listen to Sundal Colliier ABGSC they have no idea about Apple co. Buy Apple now you will glad you did. Apple have 3 new products in work and Tim Cook is the best CEO for Apple. you won.t be sory if you bought Apple today. I brought 5 call on Apple this am.

DECEMBER 6, 2012 11:03 A.M.

john wrote:

Why is Barron's giving this clown any ink? They really need to check this guy out and report back to readers his credentials so we can judge if he has any merit.

I never heard of him.

DECEMBER 6, 2012 11:09 A.M.

Tom wrote:

This analyst is an idiot. First of all why would Apple, who sells a ton of phones, follow Nokias lead who can't move smartphones to save their lives at this point? Not to mention the fact that the iphone 4 and 4S are still for sale and are practically free on contract. Not only is there no hole in Apples current offerings on the low end but the iphone is selling as well as ever and their margins are excellent. Sure they could sell a $99 junk phone off contract like Samsung does, and perhaps they would move quite a few of them, but it would tarnish their high end reputation and force margins down across their product line. What a retard the guy was who wrote that

DECEMBER 6, 2012 11:18 A.M.

Zach wrote:

I'm not much of an Apple fan, but if you go on Apple's website, they have 3 iPhones. They have the iPhone 5 for $200, they have the iPhone 4S for $100 and the iPhone 4, which is free. Isn't that cheap enough?

DECEMBER 6, 2012 11:23 A.M.

Guesty wrote:

Apple does make a cheaper iPhone, You can still buy an iPhone 4 at my local store for 450.00 +tax with 8 GB of memory. This is why I purchased the Nokia 920 with 32 GB of memory for total price of 459.99 +tax. I fail to see the argument because as you see, Apple makes a affordable iPhone. I am sure its free with contract for those that do contracts and upgrades.

DECEMBER 6, 2012 11:27 A.M.

arim2 wrote:

A “ferocious” mobile battle” you say? What ferocious battle?
Apple is not in the “commodities devices” business. Apple is in software driven ecosystems “platform” business. Barron’s please let this “bidiot” do some more research on the ground in China before you let him churn out such rubbish. For instance, take note that the middle class in China wants prestigious "brand" products. It is generally considered and insult to receive a Samsung (G3 or G10) as a gift, whereas an iPhone is considered to be a very desirable gift to receive, give or even to buy for oneself to differentiate from others around you. Status is very highly regarded in China, and Nokia and Samsung will never cut it with the growing middle class as it gets more affluent. Note this also: Apples' long term user base is intact and as the middle class in emerging markets grows, so will Apple's user base, and it continue “for a long time” to come. Please wake up and smell the coffee. And Barron's, please keep these bidiots off your paper until they come up with more credible research as opposed half baked opinions, otherwise you stand to damage your paper’s credibility.

DECEMBER 6, 2012 11:32 A.M.

Marc wrote:

Is he not aware that the iPhone 4 is offered for free and the iPhone 4s for $99. Both those seem to be great options for low priced emerging markets. Why waste additional resources on an unnecessary phone?

DECEMBER 6, 2012 11:34 A.M.

Paulo Lin wrote:

BTW, Rev, the reason I use the term iSheep is because I used to be one. I bought a Macbook Pro 2 years ago and I'm still scratching my head on why I paid so much more than a perfectly comparable Dell Windows laptop with more lots more. My Mac came with 250 GB of disk space when $800 cheaper Dell offered same specs and 500 GB. People now understand Apple become the largest company in the world so quickly, not because of the good quality products they make but because suckers like myself paid so much so Apple could make mega profits. Really, $100 more for each block of 16GB ram in the iphone 5 is competitive? Did Apple design a special form of 16GB that could justify that type of crazy price. No just huge mega profits for Apple. Even retail the fastest RAM doesn't even go near that type of price!!!!

DECEMBER 6, 2012 11:44 A.M.

Bill Tancrise wrote:

Lindberg is smoking some powerful crack, which makes for an amusing Apple commentary... but lousy advice.

DECEMBER 6, 2012 11:45 A.M.

Marc wrote:

Sundal Collier is a Norwegian investment bank. This "report" isn't so much about Apple is it is about trying to raise Nokia's share. *spit* Disgusting manipulation, and shame on Barron's for posting it.

DECEMBER 6, 2012 12:14 P.M.

john wrote:

gigo

garbage in, garbage out

DECEMBER 6, 2012 12:14 P.M.

Paco wrote:

Mobile device makers have enjoyed freakish margins for a long time, and it's about to end. Apple will have to reprice iPhone, not just make a cheaper version. Not yet, but within 12-18 months.

Evidence: Nokia dropped prices to get back into the market with their high-cost Lumia 920. Google moved from pricing its Nexus line with the herd, to using the Nexus brand to drive costs down - check prices on the SIM-free Nexus 4. An Intel-like strategy. Asian Android makers like Pantech are now delivering good products at rock-bottom prices, SIM-free.

DECEMBER 6, 2012 12:23 P.M.

xing fei wrote:

@ arim2 um...what part of China are you from....? Sure there are increasing number of iphones over here but that's because we have increasing numbers of apple sheeps. a lot of us still value quality so Samsung and LG are actually well regarded and sells pretty well. It is only considered insulting to receive domestic our htc products I the middle class. Huawei and the like are considered lower quality over here and those who really want to stand out from the crowd usually gets phones imported from Japan like sharp and fujitsu, not apple. You really shouldn't speak and generalize a population when you're not one of us.

DECEMBER 6, 2012 12:31 P.M.

Paulo Lin wrote:

Marc, look at my previous post just before about my Macbook Pro. To comment about the iphone 4 for free, no chance, only with a dataplan of 3 years and the iphone 4 is garbage compared to todays smartphones for the same price or less. iphone 4 is outdated with slow 3G data compared to new fast cheaper just as good quality smartphones with LTE and better resoulution. And please don't compare how much better quality the iphone is, drop it once and it shatters, Steve Jobs failed antenna issue overing cases to remedy the problem, Apple's failed maps on the new iOS and the list goes on (oh and BTW, 4G LTE has been around on the Galaxy for over a year before the iphone 5!!!)

DECEMBER 6, 2012 12:35 P.M.

Adam wrote:

I find these analysts beyond bizarre. They propose poor business decisions for Apple, and then use that to justify a low price target. The idea that the whole world is going to revolt against Apple if it doesn't create a low quality, low price entry level model is not supported by any evidence I've ever seen.

Sure Apple could grow revenue (and particularly unit numbers) really quickly by offering a cheap product for the developing world. But that wouldn't generate profit now, and most likely wouldn't generate profit later, either (how's Nokia doing anyway?). Apple is wisely remaining a brand for, if not the 1%, then the 5%.

DECEMBER 6, 2012 1:00 P.M.

Marc wrote:

@Paulo Lin - I appreciate your commentary and opinions, but I take it with a large grain of salt. You obviously have a chip on your shoulder. I don't know if contracts are different in your location, but my area has the iPhone 4 on a 2 year contract, not 3.

DECEMBER 6, 2012 1:03 P.M.

short wrote:

Sundel has got a short position and he is trying to make a buck. He will change his tune - just give him time. Like the rest of experts' and talking heads he counts on nobody remembering this.

DECEMBER 6, 2012 1:08 P.M.

Paulo Lin wrote:

In 2007, the iphone was innovative, this is no longer tha case. If Apple investors and users think they are invincible to innovations from other companies then go ahead and dump all your cash in their stock. Remember RIM? And Marc, no chip (maybe a little one!), it's time to look outisde the box like I did a year ago. The downfall of the Apple shares comes from a lack of innovation starting with the iPhone 5 and iPad mini with no “Retina” display (hocus pocus jargon such as "Retina" display, meaning a higher resolutio than their previous display)

DECEMBER 6, 2012 1:43 P.M.

WTF wrote:

When will this tired trope end? This may be the worst analysis I've ever read. First, "Apple must follow Nokia." Yeah, let's compare earnings of those two, Apple should clearly do all they can to take Nokia's lead. Secondly, Apple already manufactures a cheaper iPhone. It's called an iPhone 4/4S. They already have all the infrastructure built, those are the cheap iPhones. Why dilute a premium brand and spend billions ramping up infrastructure for a new product line when they already can address the market with what they have?

DECEMBER 6, 2012 1:54 P.M.

Tom wrote:

@Paulolin You obviously have a problem with Apple, but look at the cold hard facts. Apple may not be innovating as well as it has in the past right now, but record numbers of people bought the IPhone 5, record numbers bought the IPad mini and record numbers will buy their next product. Sure there are better products out there, but Apple offers good quality products and stands behind them. There are better drinks out there than Coca Cola, better stores than Walmart and better fast food places than McDonalds. However, like these companies, Apple has a world renowned brand name that people will buy for years to come regardless of what competitors are doing. Furthermore, they stand by their products and will often honor expired warranties at no charge. I agree with you that they're not so innovative anymore but looking at the fundamentals of the company, they are the strongest business in the world by far and will continue to thrive. When they do release that next big product, I guarantee whatever it is will outsell everything in its path.

DECEMBER 6, 2012 2:29 P.M.

StonehamMel wrote:

The iPhone 4 isn't "free" except in markets where the carriers subsidize the phone - which isn't everywhere, least of all in emerging markets.

HOWEVER...

"Paulo Lin" - Apply isn't RIM. It's vastly more than a brand. It has an ecosystem income from media and apps that is stunning. It has penetrated the educational market and has empowered both writers and educators with iBook Author, likely to devastate the textbook publishing market just as Craig's List destroyed classified advertising. Android penetration of the industrial and medical/pharma marketplace is negligible.

And for those who declare Apple to have lost its innovative edge by a generation of product enhancements rather than revolutions, note that in the consumer world, each new enhancement has been greeted by accelerating sales.

And in China, for the masses, there is clearly 3 smartphone levels. 1) the Chinese brands, 2) the Japanese/Korean brands - and then 3) Apple. Give the choice between pulling out a sleek new black iPhone 5 in a meeting, or any other brand, no highlevel Chinese executive would want an alternative.

nonsense. Get an iPhone 4 if your cost conscious. Who buys Windows phones? No one.

DECEMBER 6, 2012 3:11 P.M.

JME wrote:

Barons, you are kidding right? Sundal is a total idiot.

DECEMBER 6, 2012 3:28 P.M.

Paulo Lin wrote:

@stonehamel , I’m sorry to tell you that my daughter’s iphone 4s fell on from 4 feet on the floor a week after I got it and cracked, quality? How complicated did Apple make it to replace the screen (void the warranty if replaced by anyone other than them). I bought a Samsung (as you all say cheap plastic) Galaxy Infuse, dropped it at least 20 times, no case and never did it crack, yes scuffs on the case but to this date (1 year later), it still works and as solid as day 1. My daughter now owns a Galaxy S3 and loves it, way more than her 4s, it offers so much more and is more flexible since their isn’t the Apple “ecosystem” which in other words, try to restrict any improvements by outside sources unlike the open market that Android OS offers which is the key to evolution. Apple’s business philosophy is to restrict and that’s why they boast “ecosystem” which is another hocus pocus jargon designed by Apple to make it appear good since it sounds like it's good for the environment.

Making crappy cheap stuff is "key" to Apple's "success". Because as we all know, Apple isn't successful making high-quality things like Nokia is. What a load of crap.

DECEMBER 7, 2012 6:26 A.M.

lennywon@live,com wrote:

It is unfortunate that you publish such claptrap, should one believe that the publisher stands behind the article? In particular, what makes this fellow such an expert on business conditions and AAPL? He seems to just stir the pot without any evidence of facts or logic.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.